MIAMI – In its revised 2020-2021 outlook today, IATA projects that deep losses will continue throughout the airline industry into 2021 even as revenue and passenger numbers improve.
- A net loss of US$118.5bn is expected for 2020 (deeper than the US$84.3bn forecast in June).
- A net loss of US$38.7bn is expected in 2021 (deeper than the US$15.8bn forecast in June).
In a press release issued today, IATA projects that performance factors in 2021 will show improvements on 2020. The second half of 2021 is expected to be better after a difficult first half-year. Aggressive cost-cutting along with increased demand during 2021 (due to the re-opening of borders with testing and/or the widespread availability of a vaccine) will turn the industry cash-positive in Q4 2021 which is earlier than previously forecast.
“This crisis is devastating and unrelenting. Airlines have cut costs by 45.8%, but revenues are down 60.9%,” said Alexandre de Juniac, IATA’s director general and CEO. “The result is that airlines will lose $66 for every passenger carried this year for a total net loss of US$118.5bn. This loss will be reduced sharply by US$80bn in 2021.
But the prospect of losing US$38.7bn next year is nothing to celebrate. We need to get borders safely reopened without quarantine so that people will fly again. And with airlines expected to bleed cash at least until the fourth quarter of 2021, there is no time to lose.”
In the face of a half-trillion-dollar revenue drop (from US$838bn in 2019 to US$328bn) airlines cut costs by US$365bn (from US$795bn in 2019 to US$430bn in 2020), IATA says.
“The history books will record 2020 as the industry’s worst financial year, bar none. Airlines cut expenses by an average of a billion dollars a day over 2020 and will still rack-up unprecedented losses. Were it not for the US$173bn in financial support by governments we would have seen bankruptcies on a massive scale,” said de Juniac.
All major operational parameters in the passenger business were negative:
- Passenger numbers are expected to plummet to 1.8 billion (60.5% down on the US4.5bn passengers in 2019). This is roughly the same number that the industry carried in 2003.
- Passenger revenues are expected to fall to $191 billion, less than a third of the US$612bn earned in 2019. This largely driven by a 66% fall in passenger demand (measured in Revenue Passenger Kilometers/RPK). International markets were hit disproportionately hard with a 75% fall in demand. Domestic markets, largely propelled by a recovery in China and Russia, should perform better and end 2020 49% below 2019 levels.
- Further weakness is demonstrated by passenger yields which are expected to be down 8% compared to 2019 and a weak passenger load factor which is expected to be 65.5%, down from the 82.5% recorded in 2019, a level last seen in 1993.
IATA expects airline financial performance to see a significant turn for the better in 2021, even if historically deep losses prevail. The expected US$38.7bn loss in 2021 will be second only to 2020 performance.
Assuming that there is some opening of borders by mid-2021, overall revenues are expected to grow to US$459bn (US$131bn improvement on 2020, but still 45% below the US$838bn achieved in 2019). In comparison, costs are only expected to rise by $61 billion, delivering overall improved financial performance. Airlines will still lose US$13.78 for each passenger carried. By the end of 2021 stronger revenues will improve the situation, but the first half of next year still looks extremely challenging.
Passenger numbers are expected to grow to 2.8 billion in 2021. That would be a billion more travelers than in 2020, but still 1.7 billion travelers short of 2019 performance. Passenger yields are expected to be flat and the load factor is expected to improve to 72.7% (an improvement on the 65.5% expected for 2020, but still well below the 82.5% achieved in 2019).
Challenges to Recovery
IATA says that while the industry will see improved performance in 2021, the road to recovery will be long and difficult. Passenger volumes will likely not return to 2019 levels until 2024 at the earliest. Domestic markets should recover faster than than international services.
IATA lists several critical challenges need urgent attention:
Debt Levels and Financial Support: Airlines are surviving on financial life support from governments. Even after US$173bn of government support of various kinds in 2020, the median airline has just 8.5 months of cash to survive.
Many have far less as the industry enters into the critical winter period, which is characterized by weak demand even in normal times. While cash burn has diminished from the peak of the crisis, airlines are still expected to burn an average of US$6.8bn/month during the first half of 2021, before the industry turns cash positive in the fourth quarter of 2021.
Closed Borders/Quarantine:The biggest factors impeding the industry’s recovery are travel restrictions and quarantine measure that effectively prevent a meaningful revival of travel. The most immediate and critical solution is the safe re-opening of borders using systematic COVID-19 testing. Longer-term, the widespread availability of COVID-19 vaccinations should enable borders to remain open without testing or restriction, but the timeline for vaccine availability is uncertain.
“The numbers couldn’t get much worse. But there is a way forward. With the continued financial support of governments to keep airlines financially viable and the use of testing to enable travel without quarantine, we have a plan to overcome the worst immediately. And longer-term the progress on vaccines is encouraging.
Most importantly, people have not lost their desire to travel. The market response to even small measures to lift quarantine is immediate and strong. Where barriers have been removed, travel rebounded. The thirst for the freedom to fly has not been overcome by the crisis. There is every reason for optimism when governments use testing to open borders. And we need to make that happen fast,” said de Juniac.
While all regions are impacted by the crisis, those airlines with larger domestic markets or with large cargo operations are performing better. The differences between the regions become more exaggerated in 2021 with Asia Pacific and North American carriers seeing the most significant reductions in expected losses.
Featured image: Pexels
TGI Black Friday: EVERYTHING 45% OFF – SUBSCRIPTIONS, BACK ISSUES, EVERYTHING! Click here!